Industry divided over VAT cuts

By Becky Paskin

- Last updated on GMT

Related tags: Vat cut, Cost, Price, Restaurant

Industry divided over VAT cuts
The hospitality industry is divided over whether to keep or pass on savings from the Government’s VAT cuts that came into force today

The hospitality industry has been divided by the Government’s decision to cut VAT by 2.5 per cent, a step that came into force today.

The Association of Licensed Multiple Retailers (ALMR)​ has predicted the cost to the industry will be as much as £35m, as businesses rush to alter prices on their menus and reprogram tills.

The association also estimates that those establishments passing on the saving to customers as a gesture of goodwill will face a bill of between £160 and £570 each. Alex Salussola, chairman of Glendola Leisure and ALMR president said the VAT cut​ will result in a complete overhaul of how his business operates.

“It’s not just a matter of ordering new materials; every single one of our business elements needs to be re-programmed,” he exclaimed. “We haven’t even had time to work out all the ramifications and all the changes we need to make, let alone fully account for the cost implications. This Government may be happy to make a policy off the cuff, but it’s us who have to deal with the fallout.”

Whitbread​ PLC is one such business passing on the VAT saving to its customers, reducing the price of accommodation, food and drink across its portfolio. It says Whitbread has a `duty` to help its customers through the economic crisis, and has implemented the price cuts immediately.

The British Hospitality Association however says the VAT cut should be seen as a blessing by restaurateurs, as it will enable them to offset the saving against the many cost increases they face.

A spokesperson for the BHA​, said: “As menus are all VAT inclusive, if restaurateurs decide not to pass on such a small increase, tills will presumably not need to be re-programmed. The VAT cut is not hugely significant when food and other costs are rising and when many restaurant groups are offering food promotions which are already significantly greater than the VAT cut."

Pied a Terre​ and L`Autre Pied have announced that while they will be passing the savings onto their customers, they will be adding a further saving of 2.5 per cent effective immediately.

On the other hand, Bay Restaurant Group​ has announced it too will be passing the savings on to its customers but via several ‘Credit Crunch Busting’ promotions across its three restaurant chains, La Tasca, Slug and Lettuce, and Ha Ha Bar and Grill, giving customers an extra saving of 22.5p per £1 on top of the tax cut.

A spokesperson for Bay, said: “In common with other operators there is a significant time and cost implication to Bay Restaurant Company in reprinting all of our menus at short notice in the lead up to the all-important Christmas trading period.

“Therefore we are passing on the equivalent value to our customers through the introduction of a series of new restaurant deals (which) have been specifically introduced to offset the VAT decrease and would not have been offered otherwise.”

Although customers may expect prices to fall as a result of the VAT cut, it is not a legal requirement for businesses to pass the saving on to their customers. It will be those restaurants, bars or hotels that stand out for their service and quality, that will be better placed to leave their prices unchanged.

Related topics: Legislation, VAT

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